Saturday, 15 November 2014

‘Freedom of Speech and Expression v/s Obscenity’

In recent times we have had a lot of debates about fundamental right of speech and expression. One classic and most recent example, that comes to every one’s mind is the ‘Kiss of Love Campaign’ or ‘Kiss of Love Protest’ so to say, that seems to be rapidly spreading like a fashion trend across metro cities.

But the big question is, on whose side the law stands, in this fight between ‘So called preachers of freedom of expression’ and ‘Self proclaimed protectors of morality’?

To understand the issue we will have to go through a few important concepts prescribed in Indian Constitution and the provisions prescribed in the Indian Penal Code. We would also have to analyze as to how the Apex Court has viewed the issue in recent times to get a hang of how the subject has evolved over the years.

The Constitution of India in Article 19(1)(a) guarantees ‘Freedom of Speech and Expression’ to every citizen of India. Which, basically means that every citizen of India has a fundamental right to freely express himself/herself by word of mouth, writing, printing, picture of in any other manner?

In the context of the aforementioned fundamental right anyone and everyone, who is a citizen of India, is free to express himself/herself in the way he/she feels most suitable for such expression.

But the Article 19(1)(a) is not without caveats and the right to speech and expression is not an absolute right, in as much as, Article 19(2) provides for conditions under which the said right may be restricted through operation of an existing law and/or state’s right to create a new law. One among the prescribed conditions, which is most important while dealing with the subject is ‘in the interest of decency or morality’.

This brings us to the provisions of Section 294 of the Indian Penal Code (IPC), which inter alia (among other things) prescribe imprisonment for a period of three months or fine or both to the person ‘who to the annoyance of others does any obscene act in public place.

It is interesting to note that no definition of the term ‘obscene’ has been prescribed for this particular section and a reference to the same can be drawn from the clarification given in Section 292 of IPC for any publication to be obscene ‘if it is lascivious or appeals to the prurient interest or if its effect, or (where it comprises two or more distinct items) the effect of any one of its items, is, if taken as a whole, such as to tend to deprave and corrupt person, who are likely, having regard to all relevant circumstances, to read, see or hear the matter contained or embodied in it.

Since there is no specific definition of the term ‘obscene’ prescribed, the test applied by the Courts over the years was dependent on the portion underlined in the above para. The said test was popularly known as ‘Hicklin Test’ in the judicial parlance, which was derived from the famous English case of Regina Vs. Hicklin. The judgment was an interpretation rendered while interpreting ‘Obscene Publication Act, 1857’.      

One would however, feel that the standards of morality in a society are constantly evolving and the test, whether something and/or some act has a potential to deprave and corrupt someone, would have to be seen through the prevailing social acceptance standards.

The Hon’ble Supreme Court of India recently in the matter of Aveek Sarkar and Another Vs. State of West Bengal and Others has laid down landmark judgment and has given several revolutionary observations such as:

while judging as to whether a particular photograph, an article or book is obscene, regard must be had to the  contemporary mores and national standards and not the standard of a group  of  susceptible  or sensitive persons’

We are also of the view that Hicklin test is not the correct test to be applied to determine "what is obscenity".   Section 292  of  the  Indian Penal Code,  of  course,  uses  the  expression  'lascivious  and  prurient interests' or its effect.  Later, it has also been indicated  in  the  said Section of the applicability of the effect and the necessity of taking  the items as a whole and on that foundation where  such  items  would  tend  to deprave and corrupt persons who  are  likely,  having  regard  to  all  the relevant circumstances, to read,  see  or  hear  the  matter  contained  or embodied in it.  We have, therefore, to apply the "community standard test" rather than "Hicklin test" to determine what is "obscenity".   A  bare reading of Sub-section (1) of Section 292 , makes clear that a  picture  or article shall be deemed to be obscene (i) if  it  is  lascivious;  (ii)  it appeals to the prurient interest, and (iii) it tends to deprave and corrupt persons who are likely to read, see or  hear  the  matter,  alleged  to  be obscene.  Once the matter is found to be obscene, the question may arise as to whether the impugned matter falls within any of the exceptions contained in Section.  A picture of a nude/semi-nude woman, as such, cannot per se be called obscene unless it has the tendency to arouse feeling or revealing an overt sexual desire.  The picture should be suggestive of deprave mind and designed to excite sexual passion in persons who are likely to see it, which will depend on the particular posture and the background in which the nude/semi-nude woman is depicted.  Only those sex-related materials which have a tendency of "exciting lustful thoughts" can be held to be obscene, but the obscenity has to be judged from the point of view of an average person, by applying contemporary community standards.

The judgment goes on to analyze various judgments passed by the Supreme Court and comes to a conclusion that no specific definition of the term ‘Obscene’ can be given as it has to be seen in the context of the entire issue and by application of standards which are contemporary and not archaic.   

The Hon’ble Supreme Court has, however, also discussed the case of Ranjit D. Udeshi, where it suggests as follows:

The test must obviously be of a general character but it must admit of a just application from case to case by indicating a line of demarcation not necessarily sharp but sufficiently distinct to distinguish between that which is obscene and that which is not.

It has thus stressed upon the fact that the definition of term ‘obscene’ cannot be completely a generic one but the same needs to be decided on case to case basis.

Taking a cue from the aforementioned discussion, ‘can kissing in public be treated as obscene’ or can it be termed as ‘just an expression of love and affection and not amounting to breach of moral standards and hence purely within the fundamental rights enshrined in the Constitution’?

In my opinion the same would again differ on case to case basis and every expression will have to be tested on the basis of facts and circumstances of each case.

While I firmly believe, that there is no space for any hard line response to any public expression of love and affection and random registration of cases under IPC. I also feel that widespread mindless protests, demonstrations and campaigns are starting to take a form, where it may have some elements of creating annoyance to others and a tinge of obscenity.

Friday, 3 October 2014

Related Party Transactions

In the modern day regime of the Companies Act, 2013 the legislature has shown its intent to move towards stricter governance norms for the corporations and lay down stringent norms for the way they conduct their business.

Even the industry regulators such as SEBI and IRDA have moved forward in this direction and have laid down different regulations/Guidelines, which mandate stricter governance and ethical norms for the companies to conduct their business, especially when it comes to Related Party Transactions..

One such area where the new statutory and regulatory regime has sought to bring in focus is ‘Related Party Transactions’. The Companies Act, 2013 through Section 188 and the Regulators in the form of Clause 49 of the Equity Listing Agreements and the IRDA Governance Guidelines for Insurance Companies, has come out with certain requirements which try and bring about better governance when the Companies get involved into related party transactions.

In the coming paragraphs of this work, I will try to put my thoughts on certain important aspects of the Related Party Transactions.

The provisions of Section 2(76) define the term ‘Related Party’ and broadly includes director or his relatives, Key Managerial Person (KMP), Firm in which director, KMP or his relative is a partner, private company in which any of these three are director and/or member, public companies in which they are either member or hold (together with relatives) more than 2% paid-up share capital, any body corporate whose directors, MD or manager act in accordance with directions of such directors, KMP or their relatives and the Holding/Subsidiary or associate Companies etc.

The said definition of the related party is much broader in its scope and clarity as compared to the one prescribed under the Accounting Standard 18, in as much as the later focuses on the aspect of ‘significant influence’, whereas the Companies Act, 2013 clearly defines the exact nature of relationships which will fall under the ambit of related party.

Having understood the broad definition of the term ‘related party’, the provisions of section 188 of the Companies Act, 2013 mandate the dos and don’ts while getting into a related party transaction.

The provisions of Section 188 provide that no company shall enter into a contract or agreement with a related party, without the consent of the Board of Directors given by a resolution.

The nature of agreements and contracts as prescribed under the said section are:

  • Sale, purchase or supply of any goods/material;
  • Selling and/or disposing or buying property (any kind);
  • Leasing of property of any kind;
  • Availing or rendering any services;
  • Appointing of any agent for aforementioned purposes;
  • Appointment of related party to office of profit;
  • Underwriting the subscription of any securities or derivatives of the Company

The section further mandates approval of the Shareholders in a general meeting through a special resolution, if the paid up share capital of the Company is more than as prescribed (10 Crores) under the Rules framed under the Act or the value of such transaction is exceeding the limits prescribed under the said rules.
  
The section, however, excludes transactions entered in the ordinary course business other than those which are not on an ‘arm’s length’ basis.

Terms arm’s length is defined as a transaction entered into by the related parties as if they were unrelated so that there is no conflict of interest.


From the above brief discussion a sequence of events in the following order would be required to be followed by the Companies while they are proposing to enter into any transaction that may fall within the ambit of ‘related party transaction’.


The IRDA on the other hand mandates disclosure of all related party transaction in L-30 in accordance with the AS-18 under the auspices of Corporate Governance Guidelines and the Regulations on preparation of Financial Statements.

The Act also prescribes certain deterrents in the form of contracts with related parties being voidable at the option of the board, indemnification by interested directors and penalties of up to 25 lakhs in unlisted companies and jail term of up to one year in case of listed companies.    

Section 177 of the Companies Act, 2013 also makes a mention of the ‘Related Party Transactions’, but that is more in the form of rights of the Audit Committee to review certain things which have been put up before it by the Board of the Company.

While reading on the subject, I have come across opinions where Approval of Audit Committee of the board, has been mentioned as the minimum requirement for any RELATED PARTY TRANSACTIONS to be taken up by the Company.

However, I am of the view that the Audit committee, by its very constituents, is an independent body, which is meant to review and opine on wide range of issues, including but not limited to related party transaction, for the sake of better governance. Any thought of approval of any transaction by audit committee would translate into the audit committee becoming an interested party, which is against the very intent of the legislature.

In my view, therefore, before getting into any RELATED PARTY TRANSACTION the Companies need to ensure the following:

·         The transaction is in ordinary course of business and is at Arm’s length;
·    To demonstrate the above it needs to have ready information e.g. comparative pricing, type of services rendered, cost benefit analysis to justify the transaction, to name a few;
·         Alternatively seek prior approval of the board and shareholders (if any required).

In a nutshell the new Act lays down huge importance on the fact that, in the modern day era of diversification, while utilization of resources and capabilities within the same group companies may help saving on costs and optimization of resources, any misuse of related party transaction may lead to loss to the stakeholders.

In coming days I would also try and put some effort on analyzing Clause 49 requirements for the Related Party Transactions, which are important for the listed companies.

Views, Opinions, discussions are welcome....

Sunday, 7 September 2014

The Beginning

Having a blog of my own was playing on  my mind for quite some time now. But the question was, what will I write on the blog?

It surely can't be an activity just to kill time.

So as of now, I have decided to put some of my professional experiences and/or views on varied issues which relate to my professional day to day work and fields of law that I deal on a daily basis. 

Over a period of next few days, I intend to try and collate some of the works, that I have been involved in my daily professional life and pen them here with an intent to share the experiences, seek others opinions and create a forum where I can discuss various legal issues with people who have interest, experience and know how in similar field as mine.

Going ahead, I also intend to use this space for some pro bono work and hope that I can put the experience gained during my professional life to good use.

Its just a small beginning and I hope things turn out well.


7.09.2014